Eliminating the Middle Class

It appears that the American middle class is poorer by 10% compared to a decade ago. The Daily Mail newspaper informs us:

Middle Class Hit By 10% Drop In Worth

“The middle class has shrunk drastically over the last 10 years as Americans’ net worth has plunged, wages declined and standards of living slipped away… ‘America’s middle class has endured its worst decade in modern history’… In all, 85 percent of middle-class Americans say it is more difficult now than a decade ago to maintain their standard of living… household wealth declined by 35 percent… between 2005 and 2010 as… net worth plunged…”

Let’s take a look at this analytically. For a 10% margin to cause significant deprivation implies that most of those who consider themselves middle class have been living at the edge of prosperity, with a minimal safety buffer in place, such that a 10% setback could cause them noticeable financial discomfiture.

If that is true, Dear Reader, and it appears to be, then how affluent could America’s middle class have been in the first place? After all, if you have, say, a 50% safety net in place and then slip 10% it’s a minor setback. But to have a 10% setback be the difference between making it and losing it, we seriously have to question the premise of what defines the middle class in the first place.

At Prism Solutions, we have our own very different take on these things. In our view, the first step is to eliminate the very term middle class. No lower class or upper class either. There are just people, living at all different degrees of indebtedness and in possession of all different valuations of tangible assets.

For starters, if you own your home, vehicles and other property titled in your name, those are not real assets; they are contingent assets. Head out to the convenience store for a loaf of bread, plow into a station wagon full of lawyers on their way to an American Bar Association conference and the first one to sue you will take everything you own way from you.

Certainly you can take out umbrella liability insurance to protect against predatory and opportunistic litigation, but the premiums required to offset today’s double-digit jury awards might exceed your monthly income. The answer is to enjoy the sole and exclusive use of assets with none of the liabilities of ownership. It’s the ‘little people’ (to use Leona Helmsley’s term) who fall prey to pride of ownership.

The wealthy wouldn’t dream of owning anything. When you own things they can be taken away from, and that’s so very bothersome. Which is why they let various trusts and asset protection entities own the stuff they get to use and enjoy. Sue them and they can turn their pockets inside out. “Sorry, I just live here.” Control, not ownership. Big difference.

The proper disposition of assets is such an obvious and elementary step on the journey to wealth that it’s no wonder that these principles are taught in public school at the earliest comprehensible age.

Then there’s the matter of debt, which is nothing more than a financial time machine. Debt allows you to have today what you cannot afford today. Rather than save up enough cash to purchase a thing, you charge it on plastic, bring it into your life right now for instant gratification, then pay it off with tomorrow’s uncertain cash flow. Why uncertain? Because no one ever knows what tomorrow may bring.

Debt is nothing but rented money. When you owe money you are a money tenant, living month-to-month on your debt rental payments. A comfortable lifestyle sustained by significant debts that must be satisfied monthly in the form of recurring installment payments is but the reflection of wealth in a mirror. The real thing is always debt free.

Then there is the matter of cash flow. A person living in a plush McMansion and just a few paychecks away from being broke may enjoy the appearance of an elevated lifestyle, but a 10% setback could topple the whole thing.

The person living in a debt-free residence held in irrevocable trust, and driving vehicles that likewise are unencumbered and held in separate trusts (you never place both liability-positive and liability-neutral assets in the same trust) is in a vastly stronger position to weather economic busts, lawyers and other social calamities. With expenses thereby significantly reduced, a 10% setback would hardly be noticed.

For our part, our automated wealth augmentation technology routinely produces gains of 10% in a matter of weeks to months, so the occasional 10% setback is just ‘business as usual’. Nothing goes up in a straight line and we need to get those occasional 10% draw downs out of the way so we can march upwards to far higher gains.

Own nothing, have no debts, live frugally. That’s how you survive economic challenges. As for that 10% setback, wait until it hits 25% or higher. This Depression is still in diapers.

And May All Your Investments Be Profitable…

David Taylor and Gordon Philips, Directors
Prism Solutions, LLC

‘Better Investing Through Science’

July 2012 Performance Report (PDF)

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